🐂 Not all bull runs are created equal. November’s AI picks include 5 stocks up +20% eachUnlock Stocks

Chart Of The Day: Indian Rupee At Record Low And Dropping

Published 2018-06-28, 10:01 a/m
USD/INR
-
DX
-
CL
-

The Indian rupee took a dive yesterday, down 0.7% to 69.0925 against the dollar, to a record low, passing its previous record of 68.8650 posted during November 2016. The currency's slump can be blamed on two catalysts: the US dollar and the price of oil.

The stronger dollar, which is now at its highest level for the year, has been driving investors out of all emerging markets. But as the world's third largest oil consumer, India has been particularly hard hit because oil prices—currently at a three-and-half year high—are denominated in USD. With two-thirds of India's oil supply coming from imports, the rupee is particularly sensitive to both the stronger greenback and the higher price of oil since rising oil prices mean India must sell more rupees to buy the stronger dollar, with which to pay for their oil.

Thus the Indian currency is at the mercy of a double whammy that's now working in tandem to continually devalue the rupee. This also has broader and potentially more severe ramifications for an economy that's so reliant on foreign oil.

For every $10 move higher in price, the cost of oil worsens India's current account balance by 0.4 percent of the gross domestic product, and pushes up inflation by 30-40 basis points, according to analysts at Nomura Holdings.

This creates a vicious cycle for the Indian money:

  1. The growing account deficit increases analysts' bearish stance
  2. The negative outlook exacerbates capital outflow, which increases the current account deficit

The outflow of funds, in turn, further pressures the rupee, which inflates the account deficit, driving additional bearish sentiment about the country’s economy. Analysts at Barclays now predict the currency will slip to 72 rupee to teh dollar by year-end, while DBS Bank sees it at 71 to the dollar by June 2019.

USDINR Daily

Yesterday’s USD/INR jump provided an upside breakout to an ascending triangle, a pattern that develops when demand outpaces supply. The breakout demonstrates that buyers absorbed all available supply of the global reserve currency at the current levels and are willing to bid prices higher to find willing sellers.

This dynamic suggests that momentum is on the side of demand and will continue to be so with a minimum target of 70.00—based on the height of the pattern—almost another percent higher, or more than a percent higher, if traders wait for a return move toward the pattern. If Barclays' target of 72.00 is correct, the key-level break may spur speculation higher.

Trading Strategies

Conservative traders would wait for a return move—after the breakout, which may extend higher—to verify the pattern’s integrity, with at least one long green candle engulfing a preceding red or small candle of any color.

Moderate traders may wait for the potential return move for a better price entry though not necessarily for verification of the trend.

Aggressive traders may enter a long position now, provided they can either afford a stop-loss below the 68.45 pattern top or the potential loss to their account.

Equity Management

Whatever your risk level, enter a trade only after establishing a plan that offers you a minimum of 1:3 percent risk-reward ratio.

Trade Example:

  • Entry: 68.50
  • Stop-loss: 68, Risk: 50
  • Target: 70, Reward: 150, Risk-Reward Ratio: 1:3

Latest comments

Loading next article…
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.